Case Study: Not Retired & Preservation Age to 59

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Preservation Age

Generally, you must reach preservation age before you can access your super. Use the following table to work out your preservation age.

Date of birth Preservation Age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 01 July 1964 60


Under 60 and not Retired

Whilst it is true that commencing a Pension works best when you are aged above 60 (when Pension withdrawals are tax free), commencing a Pension can still be a worthwhile financial exercise producing valuable tax savings if you are aged between Preservation Age and 59 even if you are NOT "Retired" and are still working.  This is because you pay no tax on your SMSF income and realized capital gains.  Offsetting these tax savings is the tax that you pay on the Pension withdrawals from the SMSF.  However you must consider that when you draw a Pension and are under 60, you are only taxed on the "Taxable" portion of your Super Benefit and also receive a 15% "Pension Rebate" on the "Taxable" portion of the Pension accessed.  This means that you can generally take approximately $40,000 per year in Pension Income Tax Free even if you are under 60 where you earn no other income.  Some tax may apply on income drawn above this amount.  This can provide tax savings similar to, if not equal to commencing a Pension after age 60.

Case Study Example

Let's consider a Case Study demonstrating how much tax you can save by commencing a Pension between Preservation Age and 59 when you are NOT "Retired" and working.


Barney is 58 and is still working.  That is he is NOT "Retired".  Barney has a Super Benefit of $1,000,000.  His Super Benefit is broken down into a "Taxable Component" of $800,000 (built up from Employer Contributions) and a Tax Free Component of $200,000 (built up from Personal Non Concessional Contributions).  This means that 80% ($800,000 / $1,000,000) of Barney's Super Benefit is Taxable and $20% ($200,000 / $1,000,000) is Tax Free. 

Barney commences a Transition to Retirement Pension (TRAP) on 1 July, 2015.  This is the appropriate Pension to commence given that Barney is NOT "Retired".  Barney must access 4% of his Super Benefit as a Pension, that is $40,000.  The Tax Free portion of the Pension Income is 20% (i.e. $8,000) and the Taxable portion of the Pension Income is 80% (i.e. $32,000). 

Barney has no income other than his salary income from working of $100,000.  The SMSF has generated a Taxable Income of $60,000 made up of taxable interest and dividend income and realised capital gains from the sale of shares during the financial year.  Franking Credits on the dividend income Barney total $10,000.

Case Study Result 

Tax Result in SMSF With Pension No Pension
SMSF Income $60,000 $60,000
Dividend Gross Up $10,000 $10,000
Total Income $70,000 $70,000
Tax on SMSF Income $0 ($10,500)
Franking Rebate $10,000 $10,000
SMSF Tax Refund / (Payable) $10,000 ($500)


Tax Position in Personal Name With Pension No Pension
Salary Income $100,000 $100,000
Taxable Pension Income $32,000 $0
Total Taxable Income $132,000 $100,000
Tax Payable ($39,427) ($26,947)
Low Income Tax Rebate $0 $0
Pension Rebate $4,800 $0
Personal Tax Refund / (Payable) ($34,627) ($26,947)


Overall Tax Result With Pension No Pension
SMSF Tax Refund / (Payable) $10,000 ($500)
Personal Tax Refund / (Payable) ($34,627) ($26,947)
TOTAL Tax Refund / (Payable) ($24,627) ($27,447)


Case Study Result

As the above example demonstrates commencing a Pension between Preservation Age and 59 has saved Barney $2,820 in tax.  This is an annual tax savings and demonstrates the taxation savings available by commencing a Pension before age 60!  That is even though Barney has been taxed on the $32,000 Pension Income he has still saved $2,820 in tax.  This is an annual tax saving until Barney is 60.  At that time the tax saving will jump to $10,500 per annum.  A more interesting aside is that Barney has been able to access $40,000 of his Super Benefit and saved tax.  He now has the luxury of spending the Pension taken or recontributing it back into his SMSF.

Interactive Pension Analysis

To demonstrate how the above analysis may change with changes in the variable inputs we have devised an Interactive Calculator for our clients.  The Interactive Calculator allows you to quantify the taxation savings available to you by commencing a Pension before age 60, using your own personal circumstances.  To view our Interactive Calculator, please visit our Interactive Pension Analysis here to and see how much tax you can save!

Apply Now

To establish a TRAP simply visit our Online Application Form here.